Does not include money in the U.S. Treasury, bank vaults, or in the Federal Reserve Banks • Currently around $1.7 Trillion in the U.S. (M2) – Money Classification – includes all M1 plus savings accounts, all accounts requiring prior notice for withdrawal (such as CDs), and other substitutes’ for money and is useful in predicting future inflation • Currently around $8.5 Trillion in the U.S. (M3) – Money Classification – includes all M2 plus all deposits held at non-bank institutions, such as credit unions and savings and loan associations Output Quantity (Qe) Price Decrease (Pa) Price maintained (Pe) Price Increase (Pb) The intersection of the AD curve, the SRAS line, and the LRAS line is called the long-run equilibrium Production Possibilities Curve (PPC) – depicts the opportunity costs associated with the production of two products • Allows us to see the combinations of products that the economy is capable of producing In general, the amount of money circulating and the level of prices are closely related Velocity – refers to the speed that money changes hands in order to buy and sell final goods and services • Bank cards and ATMs help to increase the velocity of the money supply Monetarists Economists known as believe that money velocity is the key factor in impacting the growth of the economy • Believe that economic expansions and recessions can be prevented by keeping the growth of the supply of money in the economy at a constant rate ---such as 3% or 4% • Believe that recessions are caused by decreases in the money supply • Believe the government should increase the money supply at a constant steady rate

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Quantity Equation – says that money multiplied by velocity equals nominal GDP • A rate increase in the money supply will lead to a rate increase in inflation Average Fixed Cost – the amount of the organizations fixed cost divided by output • Found by adding its average fixed cost and its average total cost Monetarism – economic theory that states the main cause of change in aggregate output and price level is the result of monetary supply and the interest rate that comes from the amount of monetary supply • Milton Friedman is associated with the development Monopsony – is the result of their only being one buyer of a resource input, good or service Inferior Goods – goods and services that people use less of as their income increases • Example: bus transportation Aggregate Supply – measures the ability of an economy to produce (output) goods and services in the short-term and long-term • Measures the output of the GDP at various levels Monetary policy – a policy that determine the money supply of an economy • Most common, inflation, employment, and interest rate Structural Policy – macroeconomic policy that directly affects the structure and various institutions of an economy • Example: institution of trade blocs and trade agreements between nations is an example of a structural policy change Normative Analysis – is concern with analyzing whether or not a policy should be used

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